oversight

Human Capital: DOD's Civilian Personnel Strategic Management and the Proposed National Security Personnel System

Published by the Government Accountability Office on 2003-05-12.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                             United States General Accounting Office
                             Testimony
GAO                          Before the Subcommittee on Oversight of
                             Government Management, the Federal
                             Workforce and the District of Columbia,
                             Senate Committee on Governmental Affairs
For Release on Delivery
Expected at 12:30 p.m. EDT
Monday, May 12, 2003

                             HUMAN CAPITAL
                             DOD’s Civilian Personnel
                             Strategic Management
                             and the Proposed
                             National Security
                             Personnel System



                             Statement of David M. Walker,
                             Comptroller General of the United States




GAO-03-493T
                                                  May 2003

                                                  HUMAN CAPITAL

                                                  DOD’S CIVILIAN PERSONNEL
                                                  STRATEGIC MANAGEMENT AND THE
Highlights of GAO-03-493T, a testimony
before the Subcommittee on Oversight of           PROPOSED NATIONAL SECURITY
Government Management, the Federal
Workforce and the District of Columbia,           PERSONNEL SYSTEM
Senate Committee on Governmental
Affairs



                                                  DOD’s lack of attention to force shaping during its downsizing in the early 1990s
People are at the heart of an
                                                  has resulted in a workforce that is not balanced by age or experience and that
organization’s ability to perform its
                                                  puts at risk the orderly transfer of institutional knowledge. Human capital
mission. Yet, a key challenge for
                                                  challenges are severe in certain areas. For example, DOD has downsized its
the Department of Defense (DOD),
                                                  acquisition workforce by almost half. More than 50 percent of the workforce
as for many federal agencies, is to
                                                  will be eligible to retire by 2005. In addition, DOD faces major succession
strategically manage its human
                                                  planning challenges at various levels within the department. Also, since 1987,
capital. With about 700,000 civilian
                                                  the industrial workforce, such as depot maintenance, has been reduced by about
employees on its payroll, DOD is
                                                  56 percent, with many of the remaining employees nearing retirement, calling
the second largest federal employer
                                                  into question the longer-term viability of the workforce. DOD is one of the
of civilians in the nation. Although
                                                  agencies that has begun to address human capital challenges through strategic
downsized 38 percent between
                                                  human capital planning. For example, in April 2002, DOD published a
fiscal years 1989 and 2002, this
                                                  department wide strategic plan for civilians. Although a positive step toward
workforce has taken on greater
                                                  fostering a more strategic approach toward human capital management, the plan
roles as a result of DOD’s
                                                  is not fully aligned with the overall mission of the department or results
restructuring and transformation.
                                                  oriented. In addition, it was not integrated with the military and contractor
DOD’s proposed National Security
                                                  personnel planning.
Personnel System (NSPS) would
provide for wide-ranging changes
in DOD’s civilian personnel pay and               We strongly support the concept of modernizing federal human capital policies
performance management,                           within DOD and the federal government at large. Providing reasonable
collective bargaining, rightsizing,               flexibility to management in this critical area is appropriate provided adequate
and other human capital areas. The                safeguards are in place to prevent abuse. We believe that Congress should
NSPS would enable DOD to                          consider both governmentwide and selected agency, including DOD, changes to
develop and implement a                           address the pressing human capital issues confronting the federal government.
consistent DOD-wide civilian                      In this regard, many of the basic principles underlying DOD’s civilian human
personnel system. Given the                       capital proposals have merit and deserve serious consideration. At the same
massive size of DOD, the proposal                 time, many are not unique to DOD and deserve broader consideration.
has important precedent-setting
implications for federal human                    Agency-specific human capital reforms should be enacted to the extent that the
capital management and OPM.                       problems being addressed and the solutions offered are specific to a particular
                                                  agency (e.g., military personnel reforms for DOD). Several of the proposed DOD
This testimony provides GAO’s                     reforms meet this test. At the same time, we believe that Congress should
preliminary observations on                       consider incorporating additional safeguards in connection with several of
aspects of DOD’s proposal to make                 DOD’s proposed reforms. In our view, it would be preferable to employ a
changes to its civilian personnel                 government-wide approach to address certain flexibilities that have broad-based
system and discusses the                          application and serious potential implications for the civil service system, in
implications of such changes for                  general, and the Office of Personnel Management (OPM), in particular. We
governmentwide human capital                      believe that several of the reforms that DOD is proposing fall into this category
reform. Past reports have                         (e.g., broad-banding, pay for performance, re-employment and pension offset
contained GAO’s views on what                     waivers). In these situations, it may be prudent and preferable for the Congress
remains to be done to bring about                 to provide such authorities on a governmentwide basis and in a manner that
lasting solutions for DOD to                      assures that appropriate performance management systems and safeguards are
strategically manage its human                    in place before the new authorities are implemented by the respective agency.
capital. DOD has not always
concurred with our
recommendations.                                  However, in all cases whether from a governmentwide authority or agency
www.gao.gov/cgi-bin/getrpt?GAO-03-493T.           specific legislation, in our view, such additional authorities should be
To view the full testimony, including the scope   implemented (or operationalized) only when an agency has the institutional
and methodology, click on the link above.         infrastructure in place to make effective use of the new authorities. Based on
For more information, contact                     our experience, while the DOD leadership has the intent and the ability to
Derek B.Stewart at (202) 512-5140 or
Stewartd@gao.gov.                                 implement the needed infrastructure, it is not consistently in place within the
                                                  vast majority of DOD at the present time.
Chairman Voinovich, Senator Durbin, and Members of the Subcommittee,

It is a pleasure to appear before the Subcommittee to discuss the status and future
of Department of Defense’s (DOD) civilian workforce—an integral part of DOD’s
“total force”. DOD uses the term total force to refer to the different categories of
workers that it uses to accomplish its mission. The total force includes military
personnel, both active and reserve, federal civilian personnel, and private-sector
contract personnel. Collectively, these people are at the heart of the department’s
ability to perform its mission.

DOD is in the midst of a major transformation and it has undertaken a number of
related initiatives to transform its forces and fundamentally improve its business
operations. As part of DOD’s transformation process, the Secretary of Defense
and senior civilian and military leaders have committed to adopt a capabilities-
based approach to acquisition planning and to improve the linkage between
overall strategy and individual investments. At the same time, DOD has embarked
on a series of efforts to achieve strategic savings and improve its business
processes, including strengthened financial management, support infrastructure
reforms to include base closures, information technology modernization, logistics
reengineering, and more strategic human capital management. Clearly, Secretary
Rumsfeld and top DOD leadership is committed to transforming the very way that
DOD conducts business. In that regard, I am pleased to serve as an observer to
the Defense Business Practice Implementation Board. Notwithstanding these
ongoing efforts, GAO has reported a range of DOD challenges for many years.
Importantly, DOD also is covered by 9 of the 25 areas on our January 2003 high-
risk list, including the area of strategic human capital management.

DOD’s proposed National Security Personnel systems (NSPS) recognizes that, as
GAO has stated and the experiences of leading public sector organizations here
and abroad have found, strategic human capital management must be the
centerpiece of any serious government transformation effort. The NSPS would
provide for wide-ranging changes in DOD’s civilian personnel pay and
performance management, collective bargaining, rightsizing, and a variety of other
human capital areas. The NSPS would enable DOD to develop and implement a
consistent, DOD-wide civilian personnel system bringing together the many
                                    1
disparate systems that exist today.

We strongly support the concept of modernizing federal human capital policies
both within DOD and for the federal government at-large. Providing reasonable
flexibility to management in this critical area is appropriate. At the same time,
incorporating adequate safeguards in order to maximize the chance for success
and prevent abuse is essential. The federal personnel system is clearly broken in
1
 DOD officials have said that the Department’s current thinking is that NSPS will be based on practices
were outlined in an April 2, 2003, Federal Register 68 Fed. Reg. 16,119-16,142 (2003) notice asking for
comment on DOD’s plan to integrate all of its current science and technology reinvention laboratory
demonstration projects under a single human capital framework consistent with the best practices DOD
identified.


Page 1                                                               GAO-03-493T Human Capital
critical respects—designed for a time and workforce of an earlier era and not able
to meet the needs and challenges of our rapidly changing and knowledge-based
environment. In this regard, many of the basic principles underlying DOD’s
civilian human capital proposals have merit and deserve serious consideration. At
the same time, many are not unique to DOD and deserve broader consideration.

We believe that Congress should consider both governmentwide and selected
agency, including DOD, changes to address the pressing human capital issues
confronting the federal government. Agency-specific human capital reforms
should be enacted to the extent that the problems being addressed and the
solutions offered are specific to a particular agency (e.g., military personnel
reforms for DOD). In addition, targeted reforms should be considered in
situations where additional testing or piloting is needed for fundamental
governmentwide reform. Several of the proposed DOD reforms meet this test. At
the same time, we believe that Congress should consider incorporating additional
safeguards in connection with several of DOD’s proposed reforms.

In our view, it would be preferable to employ a government-wide approach to
address certain flexibilities that have broad-based application and serious
potential implications for the civil service system, in general, and the Office of
Personnel Management (OPM), in particular. We believe that several of the
reforms that DOD is proposing fall into this category (e.g., broad-banding, pay for
performance, re-employment and pension offset waivers). In these situations, it
may be prudent and preferable for the Congress to provide such authorities on a
governmentwide basis and in a manner that assures that appropriate performance
management systems and safeguards are in place before the new authorities are
implemented by the respective agency. This approach is not intended to delay
action on DOD’s or any other individual agency’s efforts, but rather to accelerate
needed human capital reform throughout the federal government in a manner that
assures reasonable consistency on key principles within the overall civilian
workforce. This approach also would provide agencies with reasonable flexibility
while incorporating key safeguards to help maximize the chances of success and
minimize the chances of abuse and failure. Finally, this approach also would help
to maintain a level playing field among federal agencies in competing for talent.

However, in all cases whether from a governmentwide authority or agency
specific legislation, in our view, such additional authorities should be
implemented (or operationalized) only when an agency has the institutional
infrastructure in place to make effective use of the new authorities. This
institutional infrastructure includes, at a minimum, a human capital planning
process that integrates the agency’s human capital policies, strategies, and
programs with its program goals and mission, and desired outcomes; the
capabilities to effectively develop and implement a new human capital system;
and importantly, the existence of a modern, effective, and credible performance
management system that includes adequate safeguards, including reasonable
transparency and appropriate accountability mechanisms, to ensure the fair,
effective, and non-discriminatory implementation of the system. Thus, for


Page 2                                                GAO-03-493T Human Capital
example, while it is imperative that we take steps to better link employee pay to
performance across the federal government, how it is done, when it is done, and
the basis on which it is done, can make all the difference in whether or not such
efforts are successful. Based on our experience, while the DOD leadership has
the intent and the ability to implement the needed infrastructure, it is not in place
within a vast majority of DOD at the present time. In that regard, last week the
House Government Reform Committee marked-up H.R. 1836, which incorporates
the DOD civilian personnel reforms. I was pleased to see that a number of
safeguards, including several along the lines we have been suggesting, were
included in the mark-up. I’m also pleased to see that the Committee added an
amendment that removed language allowing DOD authority to waive the anti-
nepotism requirements. As Congress continues to consider DOD’s proposed
reforms, I believe it is very important that such safeguards and protections be
included in future legislation. I will now discuss each of these three elements of
an institutional infrastructure in more detail.

Strategic Human Capital Planning and Management at DOD

With almost 700,000 civilian employees on its payroll, DOD is the second largest
federal employer of civilians in the nation, after the Postal Service. Defense
civilian personnel, among other things, develop policy, provide intelligence,
manage finances, and acquire and maintain weapon systems. Given the current
global war on terrorism, the role of DOD’s civilian workforce is expanding, such
as participation in combat support functions that free military personnel to focus
on warfighting duties for which they are uniquely qualified. Career civilians
possess “institutional memory,” which is particularly important in DOD because
of the frequent rotation of military personnel and the short tenure of the average
political appointee. However, since the end of the Cold War, the civilian
workforce has undergone substantial change, due primarily to downsizing, base
realignments and closures, competitive sourcing initiatives, and DOD’s changing
missions. For example, between fiscal years 1989 and 2002, DOD reduced its
civilian workforce by about 38 percent, with an additional reduction of about
55,000 personnel proposed through fiscal year 2007.

Without a strategic view, DOD’s approach to civilian downsizing in the early 1990s
relied primarily on voluntary turnover and retirements and varying freezes on
hiring authority. DOD also used existing authority for early retirements to
encourage voluntary separations at activities facing major reductions in force.
The fiscal year 1993 National Defense Authorization Act authorized a number of
transition assistance programs for civilian employees, including financial
separation incentives, or “buyouts,” to induce the voluntary separation of civilian
employees and reduce authorized positions. DOD has credited the use of
separation incentives, early retirement authority, and various job placement
opportunities as ways to avoid nearly 200,000 involuntary demotions and
separations.




Page 3                                                  GAO-03-493T Human Capital
While the tools available to DOD to manage its civilian downsizing helped mitigate
the adverse effects of force reductions, DOD’s approach to the reductions was not
oriented toward shaping the makeup of the workforce. During our work on the
early phases of the DOD downsizing, some DOD officials voiced concerns about
what was perceived to be a lack of attention to identifying and maintaining a
balanced basic level of skills needed to maintain in-house capabilities as part of
the defense industrial base. Historically, DOD has not focused on human capital
planning for civilians to the extent that it has for its military force. In 2000, the
Defense Science Board reported that senior civilian and military leaders have
devoted “far less” attention to civilian personnel challenges than the challenges of
maintaining an effective military force.

The consequences of the lack of attention to force shaping can be seen in the
current age distribution of the civilian workforce in comparison to the distribution
at the start of the drawdown. Today’s workforce is older and more experienced;
and not surprisingly, 58 percent of the workforce will be eligible for early or
regular retirement in the next 3 years.

The net effect is a workforce that is not balanced by age or experience and that
puts at risk the orderly transfer of institutional knowledge. The continuing
increase in the number of retirement-age employees, as well as the loss of
experienced personnel which can result from ongoing emphasis on public-private
sector competition involving commercial activities under OMB Circular A-76,
could make it difficult for DOD to infuse its workforce with new and creative
ideas and develop the skilled civilian workers, managers, and leaders it will need
to meet future mission requirements. With senior management attention,
strategic leadership and results-oriented performance management, however,
DOD can rebuild its civilian workforce to meet future requirements for specific
skills and experience. The work of the congressionally mandated Commercial
Activities Panel, which I chaired, noted the importance of government human
capital practices in sourcing decisions. In fact, one of the ten principles adopted
by the Panel to guide future sourcing decisions, stipulates that sourcing and
related policies should be consistent with human capital practices designed to
attract, motivate, retain, and reward a high-performing workforce.2

This principle underscores the importance of considering human capital concerns
in connection with the sourcing process. While it does not mean that agencies
should refrain from outsourcing due to its impact on the affected employees, it
does mean that the federal government’s sourcing policies and practices should
consider the potential impact on the government’s ability to attract, motivate,
retain, and reward a high-performing workforce both now and in the future.

2
 The Panel, mandated by section 832 of the Defense Authorization Act for fiscal year 2001,
required the Comptroller General to convene a panel of experts to study the process used by the
federal government to make sourcing decisions. After a yearlong study, the Panel published its
report on April 30, 2002. See Commercial Activities Panel, Improving the Sourcing Decisions of
the Government: Final Report, (Washington, D.C.: April 30, 2002). The report can be found on
GAO’s web site at www.gao.gov under the Commercial Activities Panel heading.


Page 4                                                         GAO-03-493T Human Capital
Regardless of the result of specific sourcing decisions, it is important for the
workforce to know and believe that they will be viewed and treated as valuable
assets.


The Acquisition and Logistics Workforces

These human capital challenges are even more severe in certain areas, such as
acquisition and logistics. The acquisition area is a part of the workforce that the
United States has relied upon to maintain the technological superiority that plays
an essential role in the national security strategy. According to DOD’s Acquisition
2005 task force report, the rate of reduction in the civilian acquisition workforce
has substantially exceeded that of the rest of the DOD workforce. In the past
decade, DOD has downsized its acquisition workforce by almost half. More than
50 percent of the remaining acquisition workforce will be eligible to retire by
2005; and in some occupations, DOD projects that half of the current employees
will have retired by 2006.

The task force report made a series of recommendations to DOD in October 2000.
In April 2002, we reported on DOD’s plans to implement these recommendations.
We noted that DOD has made progress in laying a foundation for reshaping its
acquisition workforce. Taking a strategic approach to human capital can be
challenging itself. First, it requires a shift in how the human resources function is
perceived, from strictly a support function to one integral to an agency’s mission.
Second, agencies may also find that they need some of the basic tools and
information to develop strategic plans, such as accurate and complete information
on workforce characteristics. Consequently, DOD views implementation of the
recommendations as long-term efforts with specific outcomes taking years to
achieve.

As a result of downsizing initiatives, the increased use of the private sector for
logistics support activities, and other factors, the civilian workforce in DOD’s
industrial activities--maintenance depots, arsenals, and ammunition
manufacturing plants--was reduced by about 56 percent between 1987 and 2002.
The result is that many in this workforce—which comprises about twelve percent
of DOD’s total civilian workforce—are currently eligible to retire and about 43
percent will be eligible to retire by 2009. In recent years, we have specifically
identified deficiencies in DOD’s planning for depot maintenance operations. In
October 2001, we reported that DOD had no overall plan that tied investments in
depot maintenance facilities and equipment with future workloads and, in turn,
                            3
with human capital needs. We recommended, among other things, that DOD
develop a depot strategic plan that would delineate future workloads to be
accomplished in each of the services’ maintenance depots. We recently reported

3
 U.S. General Accounting Office, Defense Logistics: Actions Needed to Overcome Capability
Gaps in the Public Deport System, GAO-02-105 (Washington, D.C.: Oct. 12, 2001).



Page 5                                                       GAO-03-493T Human Capital
that while DOD has initiated some action toward developing a depot strategic
plan, the department still has no depot strategic plan. We also reported that while
DOD has initiated some action toward developing a depot strategic plan, the
department still has no depot strategic plan and the future of these activities is
           4
uncertain.

Without the benefit of a departmentwide strategic depot plan, the services’ efforts
to develop comprehensive depot strategic plans vary. For example, the Army, Air
Force and Marine Corps have developed depot plans, but the Army plan has been
suspended, the Air Force plan does not address one depot nor identify specific
new work, and the Marine Corps plan has not been approved and has no approval
schedule. While the Navy has not developed a strategic depot plan, two of the
Navy components—the shipyard and aviation communities—have begun strategic
planning efforts.

In addition, we reported that the services have also not developed and
implemented strategic workforce plans that will position the civilian industrial
workforce to meet future requirements. Except for the Air Force, the services
industrial activities’ workforce plans are mostly short-term rather than strategic.
The plans are also lacking in other areas that OPM guidance and high-performing
organizations identify as key to successful workforce planning. Specifically, they
(1) usually do not assess the competencies needed for current and future
workforces; (2) do not develop comprehensive retention plans that identify
employees critical to accomplishment of organizational goals, develop an
infrastructure to assist workers in becoming long-term assets of the organization,
or provide meaningful incentives to retain valued employees; and (3) sometimes
do not develop performance measure for evaluating workforce plans to identify
corrective actions needed to improve planning efforts.

In our April 2003 report we made recommendations to strengthen strategic
workforce planning for DOD industrial activities. DOD concurred with most of
our recommendations and highlighted the importance the department places in
human capital management. In non-concurring with two of our
recommendations, DOD officials said that DOD’s new NSPS will provide all the
flexibilities and authorities needed to maintain and enhance human resources
competencies, capabilities, and performance across the department. We believe it
is premature to assume that all its provisions will be approved and that the new
system will address our concerns.

DOD’s Development of Strategic Human Capital Plans

Over the past few years, DOD has recognized the need for strategic human capital
management. Most recently the Quadrennial Defense Review Report (2001)

4
 U.S. General Accounting Office, DOD Civilian Personnel: Improved Strategic Planning Needed
to Help Ensure Viability of DOD’s Civilian Industrial Workforce, GAO-03-472 (Washington, D.C.:
Apr. 30, 2003).


Page 6                                                       GAO-03-493T Human Capital
called upon DOD to modernize and transform its civilian force so that it is as
equally agile, flexible, and innovative as a transformed U.S. military force. In April
2002, DOD published a department wide strategic plan, the Civilian Human
Resources Strategic Plan, to set forth its vision to “design, develop, and
implement human resource policies, strategies, systems, and tools to ensure a
mission-ready civilian workforce that is motivated to excel.” As we reported in
March 2003, top-level leaders in the Air Force, the Marine Corps, the Defense
Contract Management Agency, and the Defense Finance and Accounting Service
have initiated planning efforts and are working in partnership with their civilian
human capital professionals to develop and implement civilian strategic plans;
such leadership, however, was increasing in the Army and not as evident in the
      5
Navy.

DOD's issuance of its departmentwide civilian human capital plan begins to lay a
foundation for strategically addressing civilian human capital issues; however,
DOD has not provided guidance on aligning the component-level plans with the
department-level plan to obtain a coordinated focus to carry out the Secretary of
Defense's transformation initiatives in an effective manner. High-level leadership
attention is critical to developing and directing reforms because, without the
overarching perspective of such leaders as Chief Operating Officers and the Chief
Human Capital Officers, reforms may not be sufficiently focused on mission
accomplishment, and without their support, reforms may not receive the
resources needed for successful implementation. We have previously reported
that the concept of a Chief Operating Officer (COO) could offer the leadership to
help elevate attention on key management issues and transformational change,
integrate these various efforts, and institutionalize accountability for addressing
management issues and leading transformational change both within and between
                  6
administrations . In our view, DOD is a prime candidate to adopt this COO
concept. In addition, if Congress provides DOD with many of the flexibilities it is
seeking under the NSPS, the basis for adding a COO position at DOD would be
even stronger.

The human capital strategic plans we reviewed in our March report, for the most
part, lacked key elements found in fully developed plans. Most of the civilian
human capital goals, objectives, and initiatives were not explicitly aligned with the
overarching missions of the organizations. Consequently, DOD and defense
components cannot be sure that strategic goals are properly focused on mission
achievement. Also, none of the plans contained results-oriented performance
measures to assess the impact of their civilian human capital initiatives (i.e.,

5
  U.S. General Accounting Office, DOD Personnel: DOD Actions Needed to Strengthen Civilian
Human Capital Strategic Planning and Integration with Military Personnel and Sourcing
Decisions, GAO-03-475, (Washington, D.C.: Mar. 28, 2003).
6
  U.S. General Accounting Office, Highlights of a GAO Roundtable: The Chief Operating Officer Concept:
A Potential Strategy To Address Federal Governance Challenges, GAO-03-192SP (Washington, D.C.: Oct.
4, 2002).




Page 7                                                            GAO-03-493T Human Capital
programs, policies, and processes). Thus, DOD and the components cannot gauge
the extent to which their human capital initiatives contribute to achieving their
organizations’ missions. Finally, the plans did not contain data on the skills and
competencies needed to successfully accomplish future missions; therefore, DOD
and the components risk not being able to put the right people, in the right place,
and at the right time, which can result in diminished accomplishment of the
overall defense mission.

Moreover, the civilian plans we reviewed did not address how the civilian
workforce will be integrated with their military counterparts or with sourcing
initiatives. DOD’s three human capital strategic plans—two military and one
civilian—were prepared separately and were not integrated to form a seamless
and comprehensive strategy and did not address how DOD plans to link its human
capital initiatives with its sourcing plans, such as efforts to outsource non-core
responsibilities. The components’ civilian plans acknowledge a need to integrate
planning for civilian and military personnel—taking into consideration
contractors—but have not yet done so. Without an integrated strategy, DOD may
not effectively and efficiently allocate its scarce resources for optimal readiness.

In our March report we recommended, among other things, that DOD improve
future revisions and updates to the departmentwide strategic human capital plan
by more explicitly aligning its elements with DOD’s overarching mission,
including performance measures, and focusing on future workforce needs. DOD
only partially concurred with our recommendation, and, as explanation stated
that the recommendation did not recognize the involvement in and impact of
DOD’s Quadrennial Defense Review on the development of the departmentwide
plan. We also recommended that DOD assign a high priority to and set a target
date for developing an integrated departmentwide plan for both military and
civilian workforces that takes into account contractor roles and sourcing
initiatives. DOD did not concur with this recommendation and stated that it
presently has both a military and civilian plan; the use of contractors is just
another tool to accomplish the mission, not a separate workforce, with separate
needs, to manage. Finally, we wish to note that the Under Secretary of Defense
for Personnel and Readiness made a point that DOD is in the early stages of its
strategic planning efforts.7 We recognize this and believe that our
recommendations represent opportunities that exist to strengthen its developing
planning efforts.

The Capabilities Needed to Effectively Develop and Implement Human
Capital Flexibilities

Our work has identified a set of key practices that appear to be central to the
effective use of human capital authorities. These practices, which are shown in


7
 U.S. General Accounting Office, DOD Personnel: DOD Comments on GAO’s Report on DOD’s
Civilian Human Capital Strategic Planning, GAO-03-690R (Washington, D.C.: Apr. 18, 2003).


Page 8                                                      GAO-03-493T Human Capital
figure 1, center on effective planning and targeted investments, involvement and
                                                  8
training, and accountability and cultural change.

Figure 1: Key Practices for Effective Use of Human Capital Flexibilities




Congress should consider the extent to which an agency is capable of employing
these practices before additional human capital flexibilities are implemented. In
the context of NSPS, Congress should consider whether and to what extent DOD
has used and is using these practices as it develops and implements its new
civilian personnel system.

Adequate Safeguards, Reasonable Transparency, and Appropriate
Accountability

In the absence of the right institutional infrastructure, granting additional human
capital authorities will provide little advantage and could actually end up doing
damage if the new flexibilities are not implemented properly. Our work looking at
DOD’s strategic human capital planning efforts and our work looking across the
federal government at the use of human capital flexibilities and related human
capital efforts underscores the critical steps that DOD needs to take to properly
develop and effectively implement any new personnel authorities. As I
mentioned at the outset, should Congress decide to provide DOD additional
authorities, a set of adequate safeguards, including reasonable transparency and
appropriate accountability mechanisms to ensure the fair and merit-based

8
 U.S. General Accounting Office, Human Capital: Effective Use of Flexibilities Can Assist
Agencies in Managing Their Workforces, GAO-03-2 (Washington, D.C.: Dec. 6, 2002).


Page 9                                                        GAO-03-493T Human Capital
implementation and application of the new authorities is important to maximize
the chances of success and minimize the chances of abuse. Similarly, Congress
should consider ensuring that safeguards are in place for any additional
governmentwide human capital authorities that are provided to agencies.

The following provides some safeguards Congress should consider in regards to
the proposed NSPS. First, I offer some suggestions for safeguards for the overall
design for the NSPS. Second, I suggest some safeguards for specific elements of
the NSPS. In that regard, last week the House Government Reform Committee
marked-up H.R. 1836, which incorporates the DOD civilian personnel reforms. I
was pleased to see that a number of safeguards, including several along the lines
suggested below, were included in the mark-up. I’m also pleased to see that the
Committee added an amendment that removed language allowing DOD authority
to waive the anti-nepotism requirements. As Congress continues to consider
DOD’s proposed reforms, I believe it is very important that such safeguards and
protections be included in future legislation.

Safeguards for the DOD’s Overall Human Capital Program

Authority To Act Independently From The Director Of The Office Of
Personnel Management

The DOD proposal would allow the Secretary of Defense to jointly prescribe
regulations with the Director of OPM to establish a flexible and contemporary
human resources management system for DOD—NSPS. The joint issuance of
regulations is similar to that set forth in the Homeland Security Act of 20029
between the Secretary of Homeland Security and the Director of OPM for the
development of the DHS human resources management system. However, unlike
the legislation creating Department of Homeland Security (DHS), the Defense
Transformation for the 21st Century Act would allow the Secretary of Defense to
waive the requirement for joint issuance of regulations if, in his or her judgment, it
is “essential to the national security”—which is not defined in the act. Congress
may want to consider eliminating this provision to make the NSPS consistent with
the Homeland Security Act of 2002. If Congress decides to move forward with the
provision, it should consider the following safeguards:

Potential Safeguards:
• Provide statutory criteria to define what is “essential to the national security”,
   or stipulate that such criteria should be developed in consultation with the
   Director, Office of Management and Budget.
• Require that the criteria consider Federal Labor Relation Authority (FLRA)
   administrative case law decisions. FLRA has ruled on several cases involving
   the application of 5 U.S.C. 7112 where the FLRA determines the appropriate
   units for labor organization representation.


9
    Pub. L. No. 107-296, Nov. 25, 2002.


Page 10                                                 GAO-03-493T Human Capital
•   Require that the Director of OMB or the President certify the determination by
    the Secretary of Defense that an action is “essential to the national security”,
    rather than giving the sole authority to the Secretary. This would provide for
    an institutionally independent “tie-breaker” approach to such issues.


Strategic Human Capital Planning

Under the DOD proposal, key governmentwide provisions of the Homeland
Security Act concerning strategic human capital management and planning, such
as the creation of a Chief Human Capital Officer (CHCO) Act can be waived.
Congress should consider requiring that key governmentwide provisions of the
Homeland Security Act concerning strategic human capital management and
planning be nonwaiveable by DOD. This would include such provisions as:
    • Appointment of a DOD Chief Human Capital Officer.
    • Requirement that DOD’s human capital planning be included in
       Government Performance and Results Act performance plans and
       programs performance reports.
    • Adherence to strategic human capital management standards set by OPM.
       (The Homeland Security Act requires OPM to design a set of systems to
       assess the management of human capital by federal agencies, including
       appropriate metrics.)


Employee Involvement

The proposed Defense Transformation for the 21st Century Act includes
provisions intended to ensure collaboration with employee representatives in the
planning, development, and implementation of a human resources management
system. Such provisions include allowing employees to comment on, and review
the proposed human capital system and provides for a mediation procedure if
agreement cannot be reached. The provisions are generally consistent with those
required of DHS. In addition, the legislation provides that the Secretary may at his
or her sole and exclusive discretion engage in national level bargaining.

Potential Safeguards:
• Explicitly state the intent of Congress on the importance of allowing DOD
   employees to participate in a meaningful way in the creation of any human
   resources management system affecting them. This was done for DHS in the
   Homeland Security Act.
• Require DOD to submit disagreements with the union over the design of the
   human resources system after 30 days to an independent body for some level
   of assistance in resolution rather than provide that the Secretary may
   implement and inform Congress. As the bill is now written, if an agreement has
   not been reached after 30 days, and the Secretary determines that further
   consultation with employee representatives will not produce agreement, the


Page 11                                                GAO-03-493T Human Capital
    Secretary may implement any or all parts of the proposal, including any
    modifications made in response to the recommendations. The Secretary is to
    notify Congress of the implementation of any part of the proposal, any changes
    made to the proposal as a result of recommendations from the employee
    representatives, and the reasons why implementation is appropriate.
•   Provide guidance as to appropriate issues to be resolved at the national and
    local levels.


Employee Appeals Procedures

The proposal states that the appeals procedures shall ensure due process
protections and expeditious handling, to the maximum extent possible. In this
regard, the proposal provides that presently applicable appeals procedures should
only be modified insofar as such modifications are designed to further the fair,
efficient, and expeditious resolution of matters involving DOD employees. This
provision is substantially the same as a similar provision in the Homeland Security
Act of 2002 allowing DHS to prescribe regulations for employee appeals related to
their employment. Similar to the requirement for the Secretary of DHS, the
Secretary of Defense would likewise be required to consult with MSPB prior to
issuing regulations. However, neither the Homeland Security Act nor the
proposed legislation expressly requires that employee appeals be heard and
decided by the MSPB. There is also no express provision for judicial review of
decisions regarding employee appeals decisions.

Potential safeguards:
• Require that DOD establish an independent appeals authority if it decides not
   to use MSPB.
• Require that the qualifications, experience, and terms of appointment of the
   members be specified in the statute or established jointly in consultation with
   MSPB.
• Expressly state that decisions of any DOD appeals board would be subject to
   judicial review.


Evaluation and Reporting

DOD has stated that it would continue its evaluation of the science and
technology reinvention laboratory demonstration projects when they are
integrated under a single human capital framework. An evaluation and reporting
requirement would facilitate congressional oversight of NSPS, allow for any mid-
course corrections in its implementation, and serve as a tool for documenting best
practices and sharing lessons learned with employees, stakeholders, other federal
agencies, and the public.




Page 12                                               GAO-03-493T Human Capital
Potential safeguards:
• Require DOD to fully track and periodically report on its implementation and
   results of its new human capital program. Such reporting could be on a
   specified timetable with sunset provisions.
• Require DOD to undertake evaluations that are broadly modeled on the
   evaluation requirements of OPM's personnel demonstration program. Under
   the demonstration project authority, agencies must evaluate and periodically
   report on results, implementation of the demonstration project, cost and
   benefits, impacts on veterans and other EEO groups, adherence to merit
   principles, and extent to which the lessons from the project can be applied
   elsewhere, including governmentwide. Provide that such reports be done
   jointly, in consultation with, or subject to review and approval of OPM.


Safeguards for Specific DOD Human Capital Policies and Practices


Performance Management and Pay Reform

DOD has said that the cornerstone of the NSPS will be a broad banded
performance management and pay for performance systems. Performance-based
pay flexibility for broad-based employee groups should be grounded in
performance management systems that are capable of supporting pay and related
decisions. DOD’s personnel demonstration projects clearly provide helpful
insights and valuable lessons learned in connection with broad banding and pay
for performance efforts. At the same time these projects and related DOD efforts
involve less than 10 percent of DOD’s civilian workforce and expanding these
approaches to the entire department will require significant effort and likely need
to be implemented in phases over several years.

Potential safeguards:
• Establish statutory standards that an agency must have in place before it can
   implement broad banding or a more performance-based pay program:
• Assure that the agency’s performance management systems (1) link to the
   agency’s strategic plan, related goals, and desired outcomes, and (2) result in
   meaningful distinctions in individual employee performance. This should
   include consideration of critical competencies and achievement of concrete
   results.
• Involve employees, their representatives, and other stakeholders in the design
   of the system, including having employees directly involved in validating any
   related competencies, as appropriate.
• Assure that certain predecisional internal safeguards exist to help achieve the
   consistency, equity, nondiscrimination, and nonpoliticization of the
   performance management process (e.g., independent reasonableness reviews
   by Human Capital Offices and/or Offices of Opportunity and Inclusiveness or
   their equivalent in connection with the establishment and implementation of a


Page 13                                               GAO-03-493T Human Capital
    performance appraisal system, as well as reviews of performance rating
    decisions, pay determinations, and promotion actions before they are finalized
    to ensure that they are merit-based; internal grievance processes to address
    employee complaints; and pay panels whose membership is predominately
    made up of career officials who would consider the results of the performance
    appraisal process and other information in connection with final pay
    decisions).
•   Assure reasonable transparency and appropriate accountability mechanisms in
    connection with the results of the performance management process (e.g.,
    publish overall results of performance management and pay decisions while
    protecting individual confidentiality, and report periodically on internal
    assessments and employee survey results).
•   Require DOD to have OPM certify that a modern, effective, credible, and, as
    appropriate, validated performance management system with adequate
    safeguards, including reasonable transparency and appropriate accountability
    mechanisms, is in place to support more performance-based pay and related
    personnel decisions, before DOD could implement a new system. OPM should
    be required to act on any individual certifications within prescribed time
    frames (e.g., 30-60 days).


SES Pay and Performance

The proposed NSPS, similar to the Homeland Security Act, would increase the
current total allowable annual compensation limit for senior executives up to the
Vice President’s total annual compensation. However, the Homeland Security Act
provides that OPM, with the concurrence of the Office of Management and
Budget, certify that agencies have performance appraisal systems that, as
designed and applied, make meaningful distinctions based on relative
performance. NSPS does not include such a certification provision.

Potential Safeguards:
• Require OPM to certify that the DOD SES performance management system
   makes meaningful distinctions in performance and employs the other
   practices used by leading organizations to develop effective performance
   management systems, before DOD could increase the annual compensation
   limit for senior executives.
• As part of that certification, require that DOD show how its SES performance
   management approaches are consistent with leading organizations’,
   particularly in regards to establishing a clear, direct connection between SES
   performance ratings and rewards and the degree to which the organization
   achieved its goals.




Page 14                                              GAO-03-493T Human Capital
SES Non-Career Appointments

The DOD proposal would allow the Secretary to waive the provisions of Title 5
that limits non-career SES appointments to 25 percent of an agency’s total SES.
We believe that Congress should consider eliminating the proposed waiver
authority or otherwise place alternative numerical or percent of SES workforce
caps on DOD’s authority to make non-career SES appointments.

Attracting Key Talent

The legislation has a number of provisions designed to give DOD flexibility to help
obtain key critical talent. Specifically, it allows DOD greater flexibility to (1)
augment the use of temporary appointment authorities, (2) hire experts and
consultants and pay them special rates and (3) define benefits for overseas
employees. Specifically, the Secretary would have the authority to establish a
program to attract highly qualified experts in needed occupations with the
flexibility to establish the rate of pay, eligibility for additional payments, and
terms of the appointment. These authorities give DOD considerable flexibility to
obtain and compensate individuals and exempt them from several provisions of
current law.

Potential Safeguards:
• Place numerical or workforce percentage caps on the use of these provisions.
• Require these provisions only be used to fill critically needed skills that are
   identified as such in DOD’s strategic human capital plan.
• Place limits on the terms of individuals appointed under certain of the
   authorities noted above (e.g., the experts and consultants). Allow for limited
   re-appointment.
• Periodically report on the use of such authorities.


Personal Services Contracts

The legislation gives DOD greater flexibility to enter into personal services
contracts for experts and consultants for national security missions, including for
service outside of the United States. Such contracts may waive the Ethics in
Government Act of 1978, chapter 73 of Title 5 US Code (which includes conduct
and the Hatch Act), and section 27 of the Office of Federal Procurement Policy
Act (which includes limitations of subsequent employment for contracting
officials). We believe that Congress should consider eliminating the waiver
authority for some or all of the waiver provisions.




Page 15                                               GAO-03-493T Human Capital
Reduction in Force

The legislation could also allow DOD to revise Reduction-in-Force (RIF) rules to
place greater emphasis on an employee's performance. DOD has indicated that it
will be considering for application DOD-wide, personnel practices that were
identified in the April 2, 2003, Federal Register notice. This notice describes
revised RIF procedures that change the order in which employees would be
retained under a RIF order and does not directly provide for length of service to
be considered. Specifically, employees would be placed on a retention list in the
following order: type of employment (i.e., permanent, temporary), level of
performance, and veterans’ preference eligibility (disabled veterans will be given
additional priority), which would reduce the order in which veterans’ preference
is currently provided.

Potential safeguards:
• See the safeguards related to modern, effective and credible performance
   management systems above.
• Specify in statute—rather than leaving it to DOD to determine--the criteria for
   the release of competing employees in a reduction in force. These may
   include: type of employment, (e.g., permanent, temporary), performance,
   veterans’ preference, and length of service.

Rightsizing and Organizational Alignment

The proposal also provides that annuitants who receive an annuity from the Civil
Service Retirement and Disability Fund and become employed in a position within
the Department of Defense shall continue to receive their unreduced annuity.
This and selected other NSPS provisions will clearly have incremental budget
implications for which we have not seen any related cost estimate.

Potential Safeguards:
• Require additional financial accountability by requiring DOD to consult with
   OPM on the planned number of reemployed annuitants.
• Place numerical or FTE percentage limitations on the use of these provisions.
• Require these provisions only be used to fill critically needed skills that are
   identified as such in DOD’s strategic human capital plan.
• Place limits on the terms of individuals appointed under this authority. Allow
   for limited re-appointment.
• Periodically report on the use of such authorities.

Summary Observations

We at GAO strongly support transforming DOD and the federal government at
large. In fact, we are in the vanguard of the federal government’s transformation
and we plan to stay there. We applaud Secretary Rumsfeld and DOD’s
leadership’s efforts to transform how DOD does business.


Page 16                                               GAO-03-493T Human Capital
Many of the basic principles underlying DOD’s civilian human capital proposal
have merit and deserve serious consideration. The proposal is, however,
unprecedented in its size, scope, and significance. As a result, it should be
considered carefully--and not just from a DOD perspective. DOD’s proposal has
significant precedent-setting implications for the human capital area in
government in general, and for OPM, in particular. DOD’s request raises several
critical questions both for DOD as well as governmentwide policies and
approaches. Should DOD and/or other federal agencies be granted broad-based
exemptions from existing law, and if so, on what basis? Does DOD have the
institutional infrastructure in place to make effective use of the new authorities?

Agency-specific human capital reforms should be enacted to the extent that the
problems being addressed and the solutions offered are specific to a particular
agency (e.g., military personnel reforms for DOD). A government-wide approach
should be used to address certain flexibilities that have broad-based application
and serious potential implications for the civil service system, in general, and the
OPM, in particular. However, in all cases whether from a governmentwide
authority or agency specific legislation, in our view, such additional authorities
should be implemented (or operationalized) only when an agency has the
institutional infrastructure in place to make effective use of the new authorities.

As you know, we have strongly supported the concept of modernizing federal
human capital policies, including providing reasonable flexibility to management
in this critical area. However, adequate safeguards must be in place to prevent
abuse. Significant progress has been—and is being—made in addressing the
federal government’s pressing human capital challenges. But experience has
shown that how it is done, when it is done, and the basis on which it is done, can
make all the difference in whether or not we are ultimately successful.

Chairman Voinovich, Mr. Durbin, and Members of the Subcommittee, this
concludes my prepared statement. I would be pleased to respond to any
questions that you may have.

Contacts and Acknowledgments

For questions about this statement, please contact Derek B. Stewart, Director,
Defense Capabilities and Management on (202) 512-5140 or at stewartd@gao.gov.
For further information on governmentwide human capital issues, please contact
J. Christopher Mihm, Director, Strategic Issues, on (202) 512-6806 or at
mihmj@gao.gov. Major contributors to this testimony included Julia Denman,
William Doherty, Brenda S. Farrell, Christine Fossett, and Edward H. Stephenson.




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Page 17                                                GAO-03-493T Human Capital
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